The bonus accrual feature will pay an enhanced monthly interest rate of 50% of the existing monthly interest rate. For example, a 12% annual loan paying 1% interest per month would accrue 0.5% of the monthly bonus. This will accrue over the remaining Tolerance Period, and will only be payable once the loan has been repaid, if we are successful in recovering sufficient property proceeds.
As an example, if a loan is 180 days overdue in the Tolerance Period the investor would receive a bonus accrual of 3%.
The bonus is attached to the loan part and is payable to whoever owns the live loan part at the date of repayment.
* if a loan is extended, taking it out of the Tolerance Period and back into a new extended loan period which attracts interest at the published rate, any bonus accrued will be cancelled.
* if a loan part is up for sale - therefore not live - a bonus will not be paid.
(For example, if a loan is sold during the Tolerance Period, the new lender receives the bonus if they continue to hold the loan part until the loan is repaid.)
We believe this feature helps balance the risk/reward investment opportunity of overdue loans. This is paid in preference to Lendy's share of margins and fees.
Secondary trading of such loans is estimated to be just around 1% of overall trading. The potential for volatility in the value of loans that are non-performing is higher than for other loans and this change will help prevent less experienced lenders purchasing more volatile loans.